Free trade versus protectionism

Harley Shaiken, Project Syndicate

As the United States Congress begins to debate the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), a titanic struggle between the forces of free trade and protectionism promises to unfold. But that debate should not be allowed to mask the truth behind this treaty: The DR-CAFTA is more a pleading of special interests than a free-trade deal. It manages simultaneously to fleece the people of six poor countries and to put U.S. workers in harm's way.

To be sure, expanded trade holds great promise for promoting development and democracy. But the trade rules inscribed in DR- CAFTA promote profits for a few at the expense of the well being of the many. Ironically, the pact even limits market competition to protect powerful special interests, undercutting the core principles of free trade.

Consider pharmaceuticals. For American drug companies, this agreement extends the time period during which brand-name pharmaceuticals have exclusive access to markets, postponing the entry of generic drugs and thus limiting competition. For Central Americans, the cost of drugs will soar, straining budgets and gutting health care. The result may be a death sentence for many.

In agriculture, small farmers would be placed on a collision course with U.S. agro-business and their heavily subsidized farm exports. The U.S. exported paddy rice, for example, at a price almost 20 percent lower than the cost of production in 2003, making it impossible for Central Americans to compete.

As for labor rights, the agreement makes a devil's bargain: It opens trade while locking in a status quo that is appalling. Workers face everything from rampant discrimination against older people (those over 35) to physical abuse, lack of bathroom breaks, no overtime pay, and poverty wages.

In principle, workers can seek remedies by joining a union and bargaining collectively. But this option is all but foreclosed, because union membership or organizing can lead to dismissal, blacklisting, violence, or worse. In Guatemala, the largest economy, less than 3 percent of workers are unionized and their unions are marginal.

The DR-CAFTA pays lip service to international labor standards as enshrined in the International Labor Organization's core labor rights, but promptly throws them overboard. Instead, countries are committed only to enforcing their own labor laws, which often seem designed to prevent workers from joining a union. Moreover, enforcement of the rights that do exist is trapped somewhere between ineptitude and corruption.

As if this were not bad enough, the agreement jettisons everything we've learned over the last 30 years or so about international pressure and labor law reform. The stronger provisions of previous trade agreements, such as the Generalized System of Preferences (GSP) and the Caribbean Basin Initiative (CBI), have been dumped.

Although trade with Central America represents only about 1.5 percent of total U.S. trade, the outcome of the debate on DR- CAFTA will shape U.S. trade policy -- which sets the tone for other rich countries' stance in trade talks -- for years to come. A trade agreement such as this puts U.S. and Central American workers in the same labor market. If the whip is cracked in Tegucigalpa today, workers in Charlotte will feel it tomorrow. If Salvadorans' wages are squeezed, they won't be buying many products made in Los Angeles -- unless, of course, they wind up moving there.

The anemic labor standards enshrined in this agreement encourage firms to compete by taking the low road, a route that puts them on a collision course with China's rock-bottom wages. They could just as easily take the high road: Much evidence indicates that workers who are rewarded rather than victimized can contribute to greater competitiveness for firms in the long run.

It is hypocritical to promote democracy and then sign a trade agreement that denies workers the basic democratic right to organize and join unions. Without this right, elections may not add up to democracy. The checks and balances that unions provide are essential in the workplace, but they are even more important in sustaining fledgling democratic regimes.

The issue is not free trade versus protectionism, but "smart trade" versus "polarizing trade." Smart trade creates balanced development, while polarizing trade rewards a small circle of winners at the expense of the many.

Smart trade requires two key provisions: Core labor rights, backed up by tough enforcement, and a development fund targeting infrastructure and education to boost competitiveness.

DR-CAFTA does neither. Instead, it condemns Central America to carry its dismal past far into the future. Rejecting it opens the possibility for freer markets and faster income growth in Central America, as well as healthier democracies.

The writer, a Professor and Chair of the Center for Latin American Studies at the University of California, Berkeley, specializes in labor and the global economy.